Largo Resources provides guidance on its expected revenue for the three month period ending June 30, 2018 anticipating revenue of between CDN$99 million and CDN$107 million, a new quarterly revenue record for the Company.
The anticipated Q2 2018 revenue would represent an increase of between approximately 176.6% and 198.9% over Q2 2017, if realized. The increase to revenue is expected to be driven largely by the upward movement in vanadium pentoxide ("V2O5") pricing and increased production when compared to Q2 2017. The price range of V2O5 for the last week of Q2 2018, as reported by the European Metal Bulletin, was US$17.00/lb V2O5 to US$17.50/lb V2O5 as compared to US$5.35/lb V2O5 to US$6.00/lb V2O5 for the last week of Q2 2017.
Management anticipates that the overall benefit of the increased revenues will be tempered by increases in corresponding royalty expenses and certain largely non-cash foreign exchange adjustments anticipated to be required as a result of the weakening of the Brazilian Real against the USD given that certain of the Company's debts in Brazil are denominated in USD. The Company expects the foreign exchange loss in Q2 2018 to exceed the loss recorded in Q2 2017.
In addition, as a result of, among other things, the improvement in the vanadium pricing over the first half of 2018, the Company is also assessing its deferred tax position as at June 30, 2018, and work performed to date suggests that a significant net deferred tax asset might need to be recognized in the condensed interim consolidated statement of financial position at June 30, 2018, with a corresponding deferred tax recovery recognized in the condensed interim consolidated statements of income (loss) and comprehensive (loss) for the three and six month periods ended June 30 2018. Although any gain would be a non-cash item, we anticipate that it could have a material positive impact on net income and earnings per share.
Credit Facility Repayment Consent
On July 13, 2018, the Brazilian National Economic and Social Development Bank ("BNDES") provided its consent for the early repayment of the Company's credit facility with them. The receipt of this consent is a condition to the release from escrow of the first tranche of the net proceeds from the Company's recently completed offering of senior secured notes (the "Note Offering") of approximately US$143 million which have, to date, been held in escrow (the "Escrowed Funds").
The Company anticipates making a payment using the released portion of the Escrowed Funds of USD$84,138,367 to BNDES on or about July 23, 2018 representing payment in full of amounts owing to BNDES. Once repayment in full of the BNDES has occurred, the remaining Escrowed Funds will be released from escrow and used to repay the Company's remaining credit facilities held with a syndicate of commercial lenders (being Itaú Unibanco S.A., Banco Votorantim S.A. and Banco Bradesco S.A.) on or about July 31, 2018. For additional information in respect of the Company's Note Offering please see the Company's press release dated May 22, 2018.
Mr. Mark Smith, Largo's President and Chief Executive Officer, commented "We are pleased that we now have the BNDES approval in-hand and we look forward to repaying in full amounts owing to both the BNDES and our syndicate of commercial banks in Brazil. The repayment will allow us to realize the anticipated benefits of our recently completed note offering through the improvement in our capital structure, reduction in interest costs and the simplification of our reporting obligations. The restructuring of our debts along with the most recent posted price range of V2O5 for the week ended July 13, 2018 of US$18.90/lb V2O5 to US$19.85/lb V2O5 (as reported by the European Metal Bulletin) presents an exciting opportunity for our Company."
Temporary Waiver of Blackout Period
In connection with the secondary offering of common shares of the Company previously announced June 22, 2018 (the "Secondary Offering") and in order to accommodate the timely closing of the Secondary Offering, the Company's independent directors have approved a temporary waiver of its mandatory blackout period contained in its Insider Trading Policy. The temporary waiver applies to all directors, officers, senior management and corporate employees who will be permitted to continue trade in common shares of the Company provided that they are not in possession of material non-public information relating to the Company.
The common shares subject to the Secondary Offering have not been and will not be registered under the U.S. Securities Act of 1933, as amended, (the "Securities Act") and may not be offered or sold in the United States absent registration under or an applicable exemption from the registration requirements of the Securities Act. This press release does not constitute an offer to sell or the solicitation of an offer to buy the shares herein described, and shall not constitute an offer, solicitation or sale in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of that jurisdiction.